HILSENRATH’S TAKE
Manufacturing activity in China contracted in early January, according to the latest reading of the HSBC Purchasing Managers’ Index. Meanwhile borrowing costs in China’s short-term lending markets have been popping higher. India’s central bank is setting out to tame consumer price inflation, which could dent economic growth.

The International Monetary Fund has raised its growth forecasts for Japan, the U.S. and Europe, but reduced them for Latin America and Russia. Argentina’s currency is hitting record lows against the U.S. dollar. Job growth in Brazil was the slowest it’s been in a decade, even as the central bank confronts above-target inflation.

The gears of the global economy are shifting, and they appear to be shifting toward turbulence in developing economies in 2014 – and deepening challenges for their central banks – as growth in the developed world stabilizes.

- By Jon Hilsenrath

MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLDBank of Canada Holds Rates But Signals Concern About Low Inflation. The central bank held its key overnight interest rate steady at 1% Wednesday and said risks of lower inflation “have grown in importance.” Inflation is expected to remain well below the central bank’s 2% target “for some time,” it said. http://on.wsj.com/1c3kgYX

Turkey’s Central Bank Intervenes. Turkey’s central bank intervened directly in the currency markets Thursday in an effort to slow the lira’s free fall, selling dollars as the lira hit a record low of 2.2973. The lira bounced back somewhat in response, but didn’t immediately recoup all the day’s losses. http://on.wsj.com/1mKmXCF

What Happens to BOE Forward Guidance Now? Another tumble in the U.K. unemployment rate–to 7.1%, within a whisker of the Bank of England’s 7% threshold for considering an increase in its benchmark interest rate–presents bank officials with a problem familiar to the Federal Reserve: what to do with its forward guidance? http://on.wsj.com/LV7F0d The BOE’s executive director for markets Paul Fisher said that with inflation subdued, central bank policy makers must not be hasty in raising the benchmark interest rate. http://on.wsj.com/1mKkesP

Draghi Upbeat But Cautious. In an interview with Swiss daily Neue Zurcher Zeitung published Thursday, European Central Bank President Mario Draghi said there are some encouraging signs for the euro-zone economy, but risks remain. Inflation expectations are anchored, he said, and risks of both inflation and deflation are limited. http://on.wsj.com/19Q17dv

India’s Central Bank Set to Test Its Influence Over Inflation. India’s central bank is likely to start targeting consumer price inflation soon, raising questions about how much control it has over price increases. http://on.wsj.com/1dv1jdg

- ECB executive board member Benoit Coeure speaks at a conference at the U.S. Treasury Department at 3 p.m. EST (2000 GMT) Thursday. The conference is on “Mapping and Monitoring the Financial System: Liquidity, Funding, and Plumbing.”

Claudio Borio, the economics head of the Bank for International Settlements, has written an essay on the challenges for global central banking, concluding: “Policies would lean more deliberately against booms and ease less aggressively and persistently during busts. And during busts they would tackle the debt-asset quality problems head-on.” http://www.bis.org/publ/work440.pdf

BASIS POINTS
- The ECB’s governing council proposed the appointment of Sabine Lautenschläger as vice chair of the supervisory board of the single bank supervisor for the euro zone. http://on.wsj.com/1hMeHz5

- The euro-zone economy started the year on a stronger note, with Germany leading a January pickup in business activity, making it less likely the ECB will soon take further action to stimulate growth and elevate an inflation rate that is well below its target. http://on.wsj.com/19Q17dv

- The International Monetary Fund Wednesday, in unusually strong language, questioned South Korea’s currency policy, telling Seoul that it should only intervene in exchange-rate markets to prevent volatility that might damage the economy. http://on.wsj.com/1c6AGzK

- Japanese Prime Minister Shinzo Abe, speaking at the World Economic Forum in Davos, said he would act like a “drill bit” to cut through red tape and break down obstacles to growth in Japan, a “third arrow” to accompany the Bank of Japan’s pronounced monetary easing and heavy government spending. http://on.wsj.com/1eUT0tM

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